Top Arbitrum dapps overview

What is Arbitrum?

Arbitrum is an Ethereum-powered platform leveraging various layer-2 solutions. Arbitrum suite of Ethereum scaling solutions includes channels, sidechains, and rollups called AnyTrust Channels, AnyTrust Sidechains, and Arbitrum Rollup.

Arbitrum was created by Offchain Labs, a New York-based company founded by a group of computer scientists from Princeton University. Their academic background and blockchain expertise helped them to initially come out with a concept of a project in 2015 that later became Arbitrum.

The project was formed and published its whitepaper in 2018. Since May 2021, the rollup network’s mainnet has been available only to developers preparing to launch their dApps there, until the Arbitrum One mainnet opened the doors for everyone in September 2021.

How does Arbitrum work?

Arbitrum's crown jewel is its Optimistic Rollup technology. This ingenious approach bundles transactions into batches, executing them on layer 2, while logging only crucial data on Ethereum's mainnet. To learn more about Optimisitc Rollups and how they differ from ZkRollups check out DeFi Teller’s dedicated video on the topic.

Besides utilizing the Optimistic Rollup technology, Arbitrum is secured by the Multi-Round Interactive Optimistic Rollup protocol first presented in 2018. The chosen rollups model is called optimistic because all transactions are considered valid by the system and the published batches do not contain cryptographic proof of their validity, relying on participating nodes to check batches for correctness by running a procedure called fraud-proof.

Rollups are considered one of the safest solutions to scaling Ethereum, because they log all transaction data on the Ethereum chain while executing transactions on a rollup. Learn more about how rollups work in our explanatory videos about rollups and the difference between optimistic and zk-rollups.

Any user can post an assertion (called Disputable Assertion or DA on Arbitrum) about the execution of the Rollup chain, and after that, the assertion is submitted to Ethereum, and the process of scrutinizing this assertion begins. During the challenge period, any other user can challenge that assertion and in case fraud is detected, prove that the assertion is in fact fraudulent. To incentivize honest behavior, validators are obliged to bond ETH tokens, which are at stake in case the batch or a single transaction inside the batch is proven to be incorrect during the challenge period. If the challenge period passes without anyone stating that the batch is fraudulent, the DA becomes part of the network and changes its state hash. If the DA is proven incorrect, the state remains unchanged.

The second iteration of the protocol or Arbitrum 2.0 introduced the tree-like structure with multiple pipelined DAs. In the updated protocol, each state can have one DA following from it, thus branching the system. A detailed description of the updated protocol and its staking algorithm can be found in the project documentation.

Arbitrum has full support for Ethereum Virtual Machine (EVM). Therefore, the platform is well suited for projects wishing to reduce gas fees for their users while staying close to Ethereum, as well as for applications already deployed on Ethereum or prepared for it. Arbitrum has full support for the RPC interface, EVM languages, and the entire Ethereum toolkit. Thus, all smart contracts running on Ethereum will also be able to run on Arbitrum. Also, Arbitrum can run all the standard frontend tools like The Graph and ethers.js. More information about Solidity compatibility can be found here and information about frontend integrations on Arbitrum is available here. Under the hood, however, the protocol runs its own virtual machine called Arbitrum Virtual Machine or AVM.

Offloading execution of transactions from L1 is done through the Arbitrum operating system, called ArbOS, which is also responsible for isolating untrusted contracts from one another. ArbOS manages users’ fees and distributes them among validators to reward their work.

While performing computation off-chain, Arbitrum Rollup fees will still need to be paid on Ethereum, as it posts batches on L1. However, those batches will count for just a fraction of the fees paid by a transaction executed on Ethereum directly. The platform provides a suite of solutions such as an aggregator to further minimize gas fees. Instead of submitting their transactions directly to the Arbitrum inbox contract, users may opt to use an aggregator, a node that collects transactions and published them onto Ethereum in batches.

Arbitrum claims to provide up to 4,500 simple transactions (without own calldata) per second (TPS).

The connection to Ethereum is provided by the ETHBridge layer. It’s a set of smart contracts including Inbox and Outbox ones that provide message exchange between layers. 

Arbitrum Nitro, released in late 2022 following more than a year of development, represents a significant update to the Arbitrum network, propelling the system into a new era of layer 2 optimistic rollup technology. This fully integrated solution introduces essential components like fraud proofs, the sequencer, token bridges, and advanced calldata compression, among other critical features. At its core lies a game-changing prover that enables interactive fraud proofs over WebAssembly (WASM) code, bringing unprecedented versatility and efficiency to the L2 Arbitrum engine. Additionally, the integration of Geth, a widely supported Ethereum client, ensures seamless compatibility with the Ethereum standard, fortifying the network's capabilities.

Arbitrum Orbit, one of the latest products released by Arbitrum is targeted at developers and decision-makers, offering them an opportunity to create self-managed Arbitrum Rollup and AnyTrust chains. Tailored for those seeking complete control and customization, this cutting-edge product is designed to revolutionize the world of decentralized applications (dApps) and expand Ethereum's capabilities. 

The power of Arbitrum Orbit lies in its ability to provide developers with a dedicated chain, wholly owned and managed by them. Through this chain, users can seamlessly settle to one of Arbitrum's Layer 2 (L2) chains, such as Arbitrum One, Arbitrum Nova, or Arbitrum Goerli. It grants the freedom to customize various aspects, including privacy settings, permissions, fee tokens, and governance protocols, ensuring a perfect fit for any use-case or business requirement.

Developers can launch decentralized Nitro-powered blockchain networks, taking advantage of Nitro's advanced compression, fraud proofs, and EVM+ compatibility via Stylus. Providing dedicated throughput, Orbit chains guarantee gas price reliability to end-users by isolating resources and ensuring an optimal experience. Moreover, users can control access permissions to their chain, implement custom fee tokens, and continuously iterate on domain-specific mechanisms and value capture opportunities.

By harnessing the robustness of the Arbitrum Nitro stack, each Orbit chain progressively decentralizes applications and adopts the security assumptions of Ethereum's base layer. Whether it's a specific dApp, a private service, or an ecosystem of apps, Orbit chains provide the ultimate flexibility in constructing decentralized networks.

Ethereum's scaling bottleneck is addressed head-on by Arbitrum's Rollup and AnyTrust protocols. By offloading some of the network's heavy lifting to decentralized nodes supporting Arbitrum's L2 chains, Orbit chains provide a seamless solution. Users can choose between Rollup and AnyTrust, striking a balance between decentralization and performance. Orbit chains unlock the potential for applications to scale efficiently without compromising security.

How to use Arbitrum?

For dApps users who wish to use the apps represented in the Arbitrum ecosystem, they need to transfer their funds to the layer 2 network using a bridge and add a wallet Arbitrum supports. You can add Arbitrum to Metamask, for instance, through the Custom RPC feature. After your wallet is activated, you need to deposit your funds on Arbitrum using the bridge that has a token bridge SDK and a simple user interface. All Ethereum-native assets can be transferred to Arbitrum, and the network also enables the functionality of minting Arbitrum-native tokens on L2 that can be further withdrawn to Ethereum.

Developers who want to use Arbitrum without additional setup can start with a public network testnet built on top of Rinkeby and deploy their applications for testing there. However, if a developer wants to deploy their rollup, they need to install Arbitrum and its dependencies and deploy the Arbitrum chain to L1. Such a chain would not need to be deployed for each application; one chain can host multiple applications, which would even be an advantage for their synchronization. Instructions on how to deploy the demo app or contracts are available in the project documentation.

Both dApps users and developers, however, should keep in mind that there is a big difference between transactions from Ethereum to Arbitrum and vice versa - from Arbitrum to Ethereum, which take several times longer. This difference comes from the fact that Arbitrum uses optimistic rollups technology, and when withdrawing funds from it, network participants need time to check the batches.

There are however applications that offer services of liquidity providers for users who want to withdraw funds from Arbitrum quickly. Simply put, these liquidity providers provide the equivalent of what the user wants to withdraw, and take the actual funds withdrawn by the user after some time. One should understand, however, that such providers work only with fungible tokens and will not be able to provide users with an equivalent of NFT. Also, these services are not native Arbitrum products and may carry additional risks. Before using such applications, it is recommended to familiarize yourself with each of them in detail.

Arbitrum staking

Any user can make a stake for any DA on the Arbitrum network. You should be aware that with the advent of Arbitrum 2.0, the algorithm for staking on Disputable Assertions has become a bit more complicated. From now on, when you place a stake on a DA, you place it on a particular branch, and with your stake, you claim that this particular branch will be the final state of the network. Staking on Arbitrum cannot be undone, and if the branch the steak was placed on turns out to be incorrect, the bonded assets will be lost. However, the Arbitrum team argues that for a branch of incorrect transactions to exist, there must be multiple parties who voted inconsistently, which is not very likely in practice.

It is also worth considering that any DA added to the network has a deadline, and it must be checked for correctness within a certain period, at the end of which the DA will be recognized by the system as final. More information about staking on Arbitrum is available in the project documentation.

The ARB Token

ARB, the governance token of the Arbitrum ecosystem, plays a crucial role in the project's evolution toward decentralization. As upgrades continue to enhance the Arbitrum rollup, ARB facilitates governance and access control shifts from Offchain Labs to the Arbitrum DAO. All voting processes are self-executing and conducted on-chain, with a minimum of 21-37 days for proposals to pass before execution.

ARB launched with a capped supply of 10 billion tokens, with a 2% annual inflation rate thereafter. Token allocation includes ~43% for the Arbitrum DAO treasury, 18% for Offchain Labs investors, 12% airdropped to eligible users, 27% for Offchain Labs team, and 1% to active DAOs building on Arbitrum. All investor and team tokens are locked for 4 years, with a 1-year vesting cliff followed by monthly unlocks.

Arbitrum employs a so-called “Security Council”, composed of a 12-member council, addressesing time-sensitive risks that affect the DAO and its members. The council undergoes elections every six months, with members serving one-year terms. In emergencies, the Security Council can act swiftly to upgrade contracts, subject to a strong 9/12 multisig threshold. The council remains accountable to the DAO's members, who possess the authority to remove malicious members acting against Arbitrum's best interests.

Is Arbitrum Safe?

Offchain Labs is a blockchain company based in New York that oversees the development of Arbitrum. It was co-founded by Ed Felten, Steven Goldfeder, and Harry Kalodner who met at Princeton University. 

Ed Felten is a professor on leave at Princeton and a Chief Scientist at Offchain Labs. He is also famous for his job at the White House where he served as President Obama’s advisor.

Steven Goldfeder is the CEO at Offchain Labs. He holds a Ph.D. from Princeton University and is known as a co-author of Bitcoin and Cryptocurrency Technologies, the leading textbook on cryptocurrencies.

Harry Kalodner is the Chief Technical Officer at Offchain Labs. 

More information on the Arbitrum team is accessible on the Offchain Labs website.

Although the OffchainLabs team claims to have done a lot of work in terms of Arbitrum code security, as well as conducted numerous audits, reports on them have not been made public.

When choosing to use any layer-2 solution, one must also familiarize themselves with risks associated with bridging assets from layer 1.

Ecosystem and Partners

Before its mainnet became open to everyone, Artbitrum had integrated over 250 dApps including the most popular protocols in the industry such as 1inch, Aave, Balancer, Cream Finance, Curve, DAI, Dfyn, or DODO. The Maker DAO, Uniswap, and Sushiswap communities also voted to integrate on Arbitrum.

Arbitrum integrated some notable infrastructure protocols such as the Chainlink oracles and the B.Protocol file transfer suite. The full list of successful Arbitrum integrations can be found on its dApp portal. There are also native Arbitrum Explorer and Arbiscan tools to monitor the activity on the network.

The creators of Arbitrum, Offchain Labs, gained the support of some prominent investors securing around $120 million in funding in two rounds led by Lightspeed Venture Partners, Coinbase Ventures, Pantera, Compound, and Blocknation.

What's next?

Although currently focused mainly on decentralizing the protocol further, Offchain Labs has announced Arbitrum Stylus as part of its 2023 Arbitrum roadmap. 

Arbitrum Stylus is the next-gen programming environment upgrade for Arbitrum One and Arbitrum Nova. With the power of WebAssembly (WASM) smart contracts, Stylus allows users to deploy programs written in popular languages like Rust, C, and C++, alongside existing Solidity dApps on the same Arbitrum blockchain. Arbitrum Stylus is scheduled for launch in 2023, promising enhanced capabilities for dApps and developers.

Links

https://developer.offchainlabs.com